$294 Mil HI Airport Sys Rev Bnds Rated `A' by Fitch IBCA.

NEW YORK--(BUSINESS WIRE)--Sept. 27, 1999--

State of Hawaii's $293.7 million Airports System revenue bonds, consisting of $23.2 million series 1999A (Non-AMT) and $270.5 million series 2000A (AMT), are rated `A' by Fitch IBCA. The bonds are expected to be sold through negotiation via a syndicate led by Merrill Lynch during the week of October 4. Also, the airport system's approximately $1.1 billion in outstanding parity revenue bonds are rated `A'. Furthermore, the majority of the airport system's debt is insured by various Fitch IBCA rated `AAA' bond insurers, resulting in `AAA' ratings. The bonds are secured solely by revenues of the Hawaii Airports System, which includes Honolulu International Airport and 14 other airports, and aviation fuel taxes.

The `A' rating for the airport system revenue bonds reflects its monopolistic nature, its importance to the state's economy, and the financial profile of the system, especially its high unrestricted cash balances. Given Hawaii's island configuration and location, air transport is clearly vital to its overall economic viability. Also, the absolute lack of airport competition is a positive credit factor; although competition from other tourist destinations certainly exists. Furthermore, primarily through strong duty free revenues in previous years, the airport system has accumulated a large unrestricted cash balance which affords it significant financial flexibility. As of June 30,1999, the airport system had approximately $490 million in funds available for future and existing capital projects (exclusive of an additional $128 million in discretionary airport funds), or other financial needs of the system. Other key credit strengths include Hawaii's position as a well-entrenched tourist destination with considerable historical visitor levels, the system's balanced airline market share distribution, the high percentage of origination and destination traffic, and the system's strong gate control policy.

However, the Asian economic crisis has certainly had a material impact on Hawaii and the airport system more specifically. Total eastbound visitor arrivals and enplanements, primarily from Japan, have been negatively impacted by the crisis. Specifically, total enplanements decreased 3.6% in 1998 and, through July 1999 eastbound visitor arrivals are down about 7% from the previous year's first seven months. Asian-related decreases have been offset (to a certain extent) by gains in other markets such as the U.S. and Canada. As a result of the lower Asian demand, among other things, certain carriers (Asiana Airlines, Garuda Indonesia Airline, and Philippine Airlines) suspended service in the first half of 1998. Furthermore, a key result of the decreased Asian traffic and weakened yen (relative to the U.S. dollar) has been a significant decrease in duty free spending. Accordingly, the airport system's duty free provider (DFS), failed to fully meet its minimum annual payments from March 1998 through February 1999. Importantly, however, DFS has since become current on all its obligations, with the exception of certain interest and late fees. Fitch IBCA will closely monitor future duty free payments and the negotiation of the new contract in 2001.

In addition, on September 1, 1997, the state put a moratorium on all landing fees for overseas and inter-island flights. This decision was intended to stimulate air traffic to the state, using a portion of the system's excess cash to accommodate the decreased landing fees. However, the moratorium expired on August 31, 1999 and landing fees have been reset to pre-moratorium levels. Fitch IBCA views the airport system's decision to reinstate landing fees as a positive credit factor. Furthermore, the system has been utilizing an approach to provide financial assistance to the airlines. Accordingly, lawfully available revenues (approximately $21 million in fiscal year 2000) are applied to the interest portion of the system's debt service requirement. Other fundamental credit concerns include the airport system's dependence on tourism which is vulnerable to fluctuations during recessionary periods, and the highly competitive vacation/convention environment.

Although the Asian economic crisis has had a negative impact on the airport system, there is anecdotal evidence that the situation may improve. For example, since June 1999, Fitch IBCA has either upgraded, or revised the outlook to positive, for the following Asian countries' debt: Kingdom of Thailand, Republic of Korea, and the Federation of Malaysia. The positive general credit trends of the aforementioned entities have been attributed, in certain instances, to improving economic conditions. Furthermore, the yen has strengthened (relative to the U.S. dollar) recently, and is currently at or around a 12-month high. The strengthening yen should, in theory, help to stimulate duty free spending at the airport system as U.S. goods become cheaper to Asian tourists.